Rogers Favors Open Wireless Borders Over ‘Flawed’ Policy

While Chief Executive Officer Nadir Mohamed said he would prefer scrapping foreign ownership restrictions over the status quo, his first preference would be to change the current rules. Photographer: Brent Lewin/Bloomberg

Aug. 23 (Bloomberg) -- Rogers Communications Inc., Canada’s
largest wireless carrier, said the government should scrap
foreign ownership limits on telecommunications companies rather
than stick with the current “flawed” policy that favors global
competitors such as Verizon Communications Inc.

“If the end objective for government is to say ‘let’s open
up the market,’ then we’d rather have it open than flawed in
terms of the structure that is currently in place,” Chief
Executive Officer Nadir Mohamed said in an interview yesterday
at Bloomberg’s office in Toronto, where Rogers is based. “It’s
not a level playing field.”

Mohamed and his counterparts at BCE Inc. and Telus Corp.
have been pressing the Canadian government to change its
national wireless policy which they say is unfair and handicaps
the country’s three biggest carriers against a potential new
entrant like Verizon. The New York-based company, whose market
value of $135 billion is close to double that of BCE, Telus and
Rogers combined, said in June it’s weighing a bid to buy Wind
Mobile, the largest of three new Ontario-based carriers.

Verizon Chief Financial Officer Fran Shammo described the
possible bid at the time as “just us dipping our toe in the
water” and the Globe and Mail reported Aug. 14 the company may
be backing away from its bid. Robert Varettoni, a spokeswoman
for Verizon, said on Aug. 9 that Wind is one of many business
opportunities that the company is looking at. He declined to
comment on Canadian issues yesterday.

Four Competitors

While Mohamed said he would prefer scrapping foreign
ownership restrictions over the status quo, his first preference
would be to change the current rules.

The government has been trying to boost competition for
BCE, Telus and Rogers, which together control about 90 percent
of the domestic wireless market, and has pledged to foster four
competitors in each region of the country. In a spectrum auction
in January, incumbents will be limited to bidding on just one of
four blocks of prime 700-megahertz airwaves while new entrants,
including potentially Verizon, could bid for two.

“For a company to establish itself in the Canadian
marketplace, that’s a scale of spectrum they would require to
compete across the country,” James Moore, who became Industry
Minister last month, said in an interview Aug. 21.

The minister said he will not change the timing of the
auction or rules on block allocations.

Incumbent Advantage

Asked if the government would consider eliminating the
remaining restrictions on foreign ownership of phone companies,
Moore said that “our policy is to encourage more competition,
and our rules in this auction we think will arrive at that.”

Current rules prohibit any foreign company from buying a
carrier with more than 10 percent market share, which includes
BCE, Telus and Rogers.

Moore said claims by Canada’s telecommunications companies
for a level playing field are self-serving because they already
have an advantage over any potential entrant into the wireless
market. Even if Verizon enters the wireless market,it would not
be allowed to own broadcast assets under Canadian law, limiting
its ability to offer bundled cable packages. “Incumbents who
are providing broadcast policy can also bundle packages
together,” Moore said. “That is an advantage incumbents have
over Verizon.”

“A level playing field which they describe is quite a
misnomer,” he said.

‘Sophisticated Networks’

Canada’s biggest opposition party, the New Democratic
Party, have triggered parliamentary hearings on the auction
which must begin by Aug. 27 under the rules of the country’s
legislature.

A newcomer like Verizon would need to spend more than C$3
billion ($2.85 billion) to start up in Canada against “some of
the most sophisticated networks in the world,” Bill Wolfe, an
analyst at Moody’s Investors Service in Toronto, yesterday.

Shares of BCE, Rogers and Telus tumbled after Verizon
confirmed it was mulling an entry into Canada. They have since
recovered some of those losses after the Globe report Verizon
may not bid. Rogers rose less than 1 percent to $41.08 at 10:59
a.m. in Toronto and has dropped 9 percent this year. Montreal-based BCE is little changed and Vancouver-based Telus has
dropped 2 percent over the same period.

Rogers and Telus, based in Vancouver, are the Canadian
carriers that would be hardest hit by Verizon because they draw
nearly twice as much of their pre-tax profits from their
wireless businesses, Tim Casey, an analyst with BMO Capital
Markets in Toronto, said yesterday by phone.

Artificial Creation

Rogers, BCE and Telus are opposed to rules that effectively
stop them from buying rivals with less than 10 percent market
share because it would mean a transfer of spectrum ownership
while there is no clause stopping a major foreign carrier from
doing so.

The carriers are also arguing for a change to the spectrum
auction rules.

“It’s specifically about government artificially creating
rules that subsidize a large foreign incumbent to take advantage
of rules that were set for new players,” said Mohamed. “We’re
open for competition, just on terms that are the same as ours.”

If the government wants to really open up the country to
foreign ownership, then it should postpone the spectrum auction
and first address that, Mohamed said.

“If the objective is to allow foreign companies to come
in, let’s not do it with what I would describe as a stacked
deck,” he said.

Entrants Struggling

Rogers would survive as a company if that rule were
scrapped by the government, Ken Engelhart, Rogers’ vice
president, regulatory affairs, said in the interview.

“We would,” Engelhart said. “We’re not interested in
selling.”

Deposits by those planning to bid in the Jan. 14 auction
must be made by Sept. 17. Mohamed said there is still time for
the government to come up with an alternative before that and
that rule changes could still be made beyond September.

Smaller carriers Wind, Public Mobile and Mobilicity have
all struggled to gain market share from their larger rivals,
even after the Canadian government reserved wireless spectrum
for them in 2008. The government in June blocked Telus’s bid to
buy Mobilicity, citing the decision as a precedent for blocking
the transfer of spectrum.

‘Half Measure’

Mohamed’s comments echo those made earlier this month by
George Cope, CEO of BCE, who said Aug. 8 that Verizon cannot be
allowed to buy Canadian carriers at a discount nor should it
have preferred access to new spectrum.

“It’s very clear that Verizon does not need government
handouts,” he said. Jacqueline Michelis, a spokeswoman for BCE,
did not immediately return a call seeking comment on Mohamed’s
remarks.

Telus, like Rogers, is first in favor of changing current
rules and if not, opening the industry up to foreign
competition, said Ted Woodhead, Telus’ chief of regulatory
affairs.

“My first preference would be for the government to get
this right,” he said yesterday in an interview. “This sort of
half measure, sort-of limp 10-percent national market share
thing is rather goofy.”

Companies like BCE and Rogers say they need the spectrum to
feed data-hungry smartphones and tablets, and that they are the
only carriers with the scale to build the faster networks
consumers are demanding.

Lobbying Efforts

Spectrum is a “precious Canadian resource,” Mohamed, 57,
said.

As Mohamed, Cope and Telus CEO Darren Entwistle publicly
criticize the government’s plan, labor unions have come to the
support of the industry, as well as the editorial boards of some
of the country’s biggest newspapers such as the Toronto Star and
Globe and Mail.

Mohamed said he still plans to step down as CEO of Rogers
on Jan. 31 even with the auction set for Jan. 14. The board is
continuing with the process of choosing his successor, he said.

“We have a great leadership team, we’re obviously in the
process of selecting a CEO and I have no doubt whatsoever that
we’ll have the leadership that’s required,” said Mohamed.